UPDATE: CVS Caremark 4Q Net Up 17% As Revenue, Margins Rise
February 19 2009 - 11:27AM
Dow Jones News
CVS Caremark Corp. (CVS) posted a 17% increase in fourth-quarter
net income as sales and margins for the nation's largest drug-store
chain rose, aided by strength in its retail operation while its
pharmacy benefits management program was disappointing.
CVS also said its chief financial officer for nearly a decade
will retire at the end of 2010.
"I feel comfortable with my decision, because the company is in
a very strong financial position and is well positioned for
long-term growth," CFO David Rickard said during a conference call
Thursday as CVS discussed its fourth-quarter results.
CVS plans to seek a replacement through an internal and external
search. Rickard joined CVS in 1999. CVS Caremark is now the largest
drug-store chain in the country with 6,900 stores.
CVS reported fourth-quarter adjusted earnings of 70 cents a
share, up from 58 cents a share a year ago, and a penny ahead of
the consensus estimate.
Revenue rose 10% to $24.14 billion, ahead of analysts'
expectations of $23.29 billion.
The retail side of the business showed continued strength in the
fourth quarter, with revenue of $13.8 billion, a 19% year-over-year
increase. Operating margin was 7.02%, up 83 basis points from last
year.
Total same-store-sales rose 3.6%, with pharmacy sales up 4.5%
and retail sales ahead 1.8%.
Gross margin climbed to 21.6% from 20.3%.
Sanford C. Bernstein & Co. estimated that 7% of the revenue
growth stemmed from the Longs Drug Store acquisition in October,
another 4% to 5% from calendar shifts, and the balance from new
store expansion.
Pharmacy benefit management results were on the weak end, with
total revenue at $11.8 billion, a 1.5% year-over-year increase;
operating margin dropped 5 basis points to 6.45%.
"We expect 2009 operating results for CVS to be relatively
consistent with 2008, with a strong retail performance and a
relatively weak pharmacy benefit management performance," Sanford
C. Bernstein analyst Helene Wolk said.
Pharmacy operators have been cutting costs, including trimming
their work forces, as the weak economy has led consumers to fill
fewer prescriptions. CVS, which last month said the trend would
continue for most of the year, has been aggressively promoting
discount drug programs, as have several other drug chains. This can
increase sales among the uninsured but could also threaten
margins.
CVS last month warned investors that 2009 margins in the
CaremarkRX pharmacy benefits business, acquired for $27 billion in
2007, would be tight after it lowered prices to keep clients.
The company has emerged as one of the largest survivors of a
bruising, multiyear consolidation of the U.S. pharmacy business.
The Longs takeover expanded CVS's footprint into Western markets
where it has been weak.
CVS Caremark last month boosted its quarterly dividend 11%,
citing its continued strong financial performance and significant
cash generation, marking the sixth consecutive year of
increases.
Shares of CVS were trading recently at $28.86, up $1.87, or
7%93.
-By Karen Talley, Dow Jones Newswires; 201-938-5106;
karen.talley@dowjones.com
(Shirleen Dorman contributed to this report.)